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LdLLTPddLdAPLLTPAPLdLdTPMPL???????????00,28 Landsburg, Price Theory and Application, 6th edition EXHIBIT Total, Marginal and Average Products 9 Landsburg, Price Theory and Application, 6th edition Shape of MP and AP Curves ? AP – If number of workers large, additional workers cause average product of labor to decrease – Inverted Ushape ? MP – Inverted Ushape ? AP and MP relationship to one another – If MP AP, MP lies above AP – If MP AP, MP lies below AP – If MP = AP, AP at maximum or peak 10 Landsburg, Price Theory and Application, 6th edition EXHIBIT The Stages of Production 11 Landsburg, Price Theory and Application, 6th edition Variable Costs in the SR ? Constructing the firm’s variable cost curve – Need total product curve – Need wage rate ? Price of hiring labor – Multiply number of workers by wage rate to get variable cost PLL=VC – Curve relates total product, not number of workers, to variable cost 12 Landsburg, Price Theory and Application, 6th edition Exhibit VC Curve N TP Q VC TC 1 5 5 15 65 2 12 12 30 80 3 21 21 45 95 4 28 28 60 110 5 33 33 75 125 6 36 36 90 140 7 37 37 105 155 13 Landsburg, Price Theory and Application, 6th edition EXHIBIT Variable Cost Curve 14 Landsburg, Price Theory and Application, 6th edition Fixed Costs in the SR ? Costs of capital – Physical assets, such as machinery and factories –Ex. handyman’s van 15 Landsburg, Price Theory and Application, 6th edition Total Cost ? Total cost equal to sum of fixed and variable costs of production TC=FC+VC=FC+PLL ? Additional cost considerations beside totals 16 Landsburg, Price Theory and Application, 6th edition Computing Average and Marginal Costs ? Average variable cost (AVC): variable cost divided by quantity of outpu